3 COMMENTARY IRS grounding small airline companies with excise tax assessments By Curtis B. Hunter, Esq. Berger Singerman LLP For the last several years the Internal Revenue Service has continued to experience funding cuts resulting in understaffed departments. As the IRS is the chief enforcer of the Affordable Care Act, staffing concerns will likely continue, as more agents are shifted to focus on the health care law. The fallout is evident in recent reports that refunds for 2014 tax returns will be delayed several months and communications with IRS agents will become increasingly difficult. These staffing issues, however, have had little to no deterrent effect on the aggressive investigation and audit practices of the excise tax department as it continues to target the small airline industry. Multimillion-dollar tax assessments, penalties and interest are not uncommon, forcing many small airlines to sell if they are able or go out of business. Until recently, many small carriers have provided flights and maintained the same reporting procedures for decades, with no issues. Perhaps considering them an untapped source of revenue, the IRS has aggressively targeted small air carriers providing indirect charter flights to third parties. EXCISE TAX STRUCTURE AND ASSESSMENT Section 4261 of the Internal Revenue Code, 26 U.S.C.A. 4261, imposes an excise tax on the air transportation of passengers. A 7.5 percent tax applies to the fare charged each passenger on a scheduled flight and attaches at the time a passenger pays for the flight. A flat tax of $4 is also imposed on each domestic segment of air transportation (with an exception for flights to and from rural airports). Passengers are responsible for paying the tax, and generally there are no exemptions for federal and state government agencies, political subdivisions, or their employees. Multimillion-dollar tax assessments, penalties and interest are not uncommon, forcing many small airlines to sell if they are able or go out of business. As provided in Section 4291 of the code, whoever receives payment for the air transportation is responsible for collecting and remitting the tax to the IRS on Form 720, called the quarterly federal excise tax return. However, where the tax is not collected at the time payment for transportation is made, the tax must be paid by the carrier providing the initial flight segment. In theory this system of taxing air transportation appears straightforward, but in practice it becomes quite problematic when IRS auditors misapply the law to certain types of flights. Curtis B. Hunter, J.D., L.L.M. in tax, is a partner at Berger Singerman LLP in Miami and is a member of the business, finance and tax team. He can be reached at DIRECT CHARTER FLIGHTS: NOT AN ISSUE In the typical direct charter scenario, the air carrier charges its customers for chartered flights. An example would be a school or university chartering a flight to transport an athletic team. For direct charter flights, the carrier s customer arranges air transportation directly with the carrier, and the carrier is responsible for handling all aspects of the flight. The carrier provides the customer with the aircraft, crew, maintenance and insurance, or ACMI, and charges a flat fee for the ACMI, fuel, cost to load/unload bags, landing fees, catering, airport fees, etc., incurred for the flight. For these direct charters, the carrier is responsible for collecting excise tax from the customer the end user and remitting the taxes with the quarterly Form 720. INDIRECT CHARTER FLIGHTS: THE TARGET REUTERS/Jonathan Ernst Perhaps considering them an untapped source of revenue, the Internal Revenue Service has aggressively targeted small air carriers providing indirect charter flights to third parties. It is with indirect charter flights, where the air carrier s customer sells transportation to a third-party end user, when overzealous auditing practices and misapplication of the law lead to erroneous tax assessments. Indirect charter flights are typically with charter brokers, public charter operators and other airlines that contract with the carrier through wet leases. Pursuant to a wet lease, the carrier provides the ACMI, and MARCH 11, 2015 n VOLUME 33 n ISSUE 1 3

4 the charterer/customer directly contracts with fuelers, airports and handlers, and directly pays for all expenditures other than ACMI. The carrier will invoice the charterer/ customer at a fixed hourly rate, not per passenger. More importantly, the charterers directly sell transportation to their passengers and are responsible for collecting excise taxes at the point of sale which is not always done. The carrier has no contact or privity with the passengers obligated to pay excise tax until immediately prior to boarding. In addition to selling transportation directly to passengers, the charterers maintain operational control over every aspect of the flights and dictate flight schedules, times, duration and destination. The carrier is solely responsible for providing ACMI when demanded by the charterer. Other airlines Air carriers provide aircraft through wet leases to foreign and domestic airline customers. For example, some foreign airlines are not permitted under Federal Aviation Administration regulations to fly passengers to the United States but are approved by the Department of Transportation to sell tickets to passengers and collect/report excise tax to the IRS. Domestic carriers with proper FAA certification are authorized to provide transportation to the foreign airlines passengers. As with all other non-direct chartered flights, the client airline sells transportation to its passengers, with whom the carrier has no contact, and it should be the client s responsibility to collect excise tax. Domestic commercial airlines also contract with carriers when the airlines need extra capacity (they have overbooked their flights) or if an aircraft is grounded for mechanical problems and is unable to transport its passengers. Again, these airlines sell transportation directly to its passengers and should collect taxes at the point of sale. For all flights provided by carriers to other airlines, the airline charterer maintains operational control over every aspect of the flights and dictates flight schedules, times, duration and destinations. Charters with brokers Third-party charters. With brokered charter flights, air carriers provide transportation to brokers who have arranged for passengers with a third party. The brokers have their own fueling contracts, airport contracts, etc., and handle all aspects of the operation except for the ACMI that is provided by the carrier through a wet lease. The broker/charterer sells transportation as a full charter directly to its customers (i.e., a university or athletic team), and is statutorily required to collect excise taxes at the point of sale. Brokered flights are the opposite of chartered flights that air carriers provide directly to a university or team for which the carriers collect the excise tax. Transportation for government agencies. Another example of indirect chartered flights contracted with brokers is arrangements to provide transportation domestic and international to governmental agencies such as the U.S. Department of Homeland Security, in particular Immigration and Customs Enforcement. maintain operational control of the flights and should be statutorily required to collect taxes from their passengers at the point of sale. IRS MISAPPLICATION OF THE LAW: THE PROBLEM Each domestic air carrier is required to submit a monthly report, called Form 41, Schedule T-100, to the U.S. Department of Transportation listing the total revenue passengers, or market data, for each flight. Schedule T-100 is not designed for nor does it report the amount of taxes paid for each passenger or which party may have collected the tax. Regardless, IRS auditors rely almost exclusively on the passenger information contained in the Schedule T-100 to extrapolate the amount of taxes the auditor believes should have been paid and collected by the air carrier under audit. If IRS records Passengers are liable for paying the tax and generally there are no exemptions for federal and state government agencies, political subdivisions, or their employees. Pursuant to wet leases, carriers provide ACMI to charterers that have contracted directly with ICE to either deport illegal aliens to their country of origin or transport them to other ICE holding facilities in the United States. The passengers, or deportees, on these flights are not paying for transportation, but DHS pays the charterer for these services. As with all other wet leases, the charterer should be considered the party statutorily responsible for collecting excise taxes from payments it receives from DHS. The charterer maintains complete operational control over every aspect of the flights and dictates flight schedules, times and destinations, all of which the charterer arranges with DHS without any input from the carrier. Public charter operators Finally, air carriers also provide indirect charter flights to public charter operators that contract with multiple carriers and airlines. The public charterers are independent transportation providers or large travel agents that offer and sell flights directly to passengers. As with all other indirect chartered transportation, the public charterers indicate that the carrier has not paid taxes for the identified passengers, the agency will assess taxes against the carrier regardless of whether the carrier s customer or a third party has collected and remitted taxes to the IRS creating the possibility of double collection. The practice is particularly prevalent with those carriers, including non-commercial air carriers certified under Federal Aviation Regulations Part 121, that provide aircraft to third-party charter companies or commercial airlines described above. As legal support to assess taxes on the carriers, the IRS relies heavily on so-called revenue rulings and case law holding that a carrier is responsible for collecting the excise tax unless it has relinquished possession, command and control of the aircraft to its customers. A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts. Factors in determining the requisite command and control of the flights focus on 4 WESTLAW JOURNAL n AVIATION

5 which party contracts with and pays for the pilots, provides aircraft maintenance, pays the aircraft s insurance and other expenses, and controls flight scheduling, namely the routes and timing of flights. Frequently IRS auditors will merely apply the percentage excise tax to all passengers reported on the air carrier s monthly Schedule T-100, although the carrier has relinquished operational control of the aircraft to its customer. Finally, auditors misinterpret the corresponding Treasury regulations to Section 4261 in assessing the excise tax on the air carrier. In this context, the IRS cites Treas. Reg (h)(1) for the premise that an amount paid for the charter of an aircraft for transportation is subject to excise tax. For direct charter flights the carrier would be responsible for collecting excise tax from its direct charter customer. However, the regulations further provide that a charterer (the carrier s customer) that sells transportation to other persons is responsible for collecting and accounting for the excise tax under certain circumstances. Treas. Reg (h)(2). It is important for the air carrier to advise its customers of their obligation to collect and remit excise taxes as the IRS will ultimately look to the carrier or plane owner if the taxes have not been collected. Multiple cases, revenue rulings, private letter rulings and technical advice memorandums consistently apply Section (h)(2) to wet leases and similar fact patterns, recognizing the responsibility of the charterer to collect and remit excise taxes. As recognized in a 1975 revenue ruling, Rev. Rul , the key consideration in determining liability for the collection of excise taxes is the autonomy of the person receiving payment from passengers, not the autonomy of the person who owns and operates the aircraft. In light of its funding woes, the IRS will likely continue its aggressive audit practices in industries with the potential to generate significant revenue. Small airline companies particularly those offering indirect charter flights should be diligent in complying with contractual requirements that shift the tax burden to its customers and vigorously defend its practices if audited. WJ HELICOPTER CRASH (PRODUCT LIABILITY) Judge dismisses Rolls-Royce from case over defective helicopter engine An oil rig worker who says he was injured in a helicopter crash failed to provide evidence that the aircraft s Rolls-Royce engine was defective, a federal judge in Louisiana has ruled. Cheramie v. Panther Helicopters Inc. et al., No. 2:14-cv-01597, 2015 WL (E.D. La. Feb. 18, 2015). U.S. District Judge Sarah S. Vance of the Eastern District of Louisiana granted Rolls- Royce Corp. s motion to dismiss Feb. 18, ruling plaintiff Mark Cheramie did not allege how or when the defendant s engine became faulty. Cheramie alleges only that the engine was defective, the judge said. The plaintiff, an EPL Oil & Gas worker, claimed he suffered permanent body and brain injuries when a Bell 407 helicopter lost engine power shortly after takeoff from an oil rig platform and crashed into the Gulf of Mexico in August Cheramie sued Panther Helicopters Inc., which owned the helicopter as part of its air taxi service for EPL employees, and Rolls- Royce, which made the engine. The suit claimed the helicopter s defective engine and Panther s use of defective components on the aircraft caused the crash. Cheramie sought compensation for his claimed injuries, medical expenses, including Federal maritime law REUTERS/Mike Stone The plaintiff claimed he was injured when a Bell 407 helicopter, like the one shown here, lost engine power shortly after takeoff from an oil rig platform and crashed into the Gulf of Mexico. multiple surgeries and custodial care, and his impaired wage earning capacity. Rolls-Royce moved to dismiss the plaintiff s claims against it, arguing Cheramie offered only bare and scant allegations. Plaintiff s complaint is bereft of any facts to show how any parts Rolls-Royce designed, manufactured or sold caused or contributed to the accident, the motion said. Judge Vance agreed, ruling the plaintiff did not adequately plead a maritime products liability suit under the Restatement (Second) of Torts 402(A). A tort claim must satisfy both a location and a connection test for federal maritime law to apply. Location test Did the tort occur on navigable waters or did an injury suffered on land result from a vessel on navigable waters? Connection test Does the incident have the potential to disrupt maritime commerce? Is the nature of the activity that caused the incident in line with traditional maritime activity? Jerome B. Grubart Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 534 (1995). MARCH 11, 2015 n VOLUME 33 n ISSUE 1 5

6 Restatement (Second) of Torts 402(A) Special Liability of Seller of Product for Physical Harm to User or Consumer (1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such a product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold. (2) The rule stated in Subsection (1) applies although (a) the seller has exercised all possible care in the preparation and sale of his product, and UNCOVER VALUABLE INFORMATION ABOUT YOUR OPPOSING EXPERT WITNESS (b) the user or consumer has not bought the product from or entered into any contractual relation with the seller. Although the suit did not invoke the District Court s admiralty jurisdiction, federal maritime law applies because the complaint satisfies the location and connection tests under Jerome B. Grubart Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 534 (1995), Judge Vance said. The plaintiff claimed he was injured when the helicopter crashed in the navigable waters of the Gulf of Mexico, which satisfies the location test, the judge said. A helicopter crashing into the Gulf of Mexico can disrupt maritime commerce and both the U.S. Supreme Court and the 5th U.S. Circuit Court of Appeals have held that helicopter transport to and from offshore oil rigs constitutes maritime activity, thus satisfying the connection test, Judge Vance said. Under maritime law, products liability claims are governed by Section 402(A), which requires a plaintiff to allege the product was defective when it left the defendant s control or was unreasonably dangerous, which Cheramie failed to do, the judge said. The case is continuing against Panther Helicopters. WJ Attorneys: Plaintiff: Paul M. Sterbcow, Beth E. Abramson, Ian F. Taylor and Jessica L. Ibert, Lewis, Kullman, Sterbcow & Abramson, New Orleans Defendants: John M. Dubreuil, Howard J. Daigle Jr. and Kirk N. Aurandt, Daigle & Fisse, Covington, La. Related Court Documents: Order: 2015 WL Rolls-Royce s motion to dismiss: 2014 WL Complaint: 2014 WL See Document Section C (P. 28) for the order. Expert Intelligence Reports give you the information you need to evaluate your opposing counsel s expert witness. In every Expert Intelligence Report you request, you ll find comprehensive, logically organized documentation of an expert s background and performance as an expert witness: transcripts, depositions, challenges, resumes, publications, news stories, social media profiles even hard-to-get expert testimony exhibits from dockets. Learn more at TRexpertwitness.com/ intelligence Thomson Reuters L /7-12 Thomson Reuters and the Kinesis logo are trademarks of Thomson Reuters. 6 WESTLAW JOURNAL n AVIATION

7 JURISDICTION Suit against New Zealand airline-software company flies in Hawaii By Melissa J. Sachs, Esq., Senior Legal Writer, Westlaw Journals A New Zealand company that allegedly sold useless software to an airline flying exclusively in the Hawaiian islands must face the carrier s lawsuit in the Aloha State, a federal judge in Honolulu has ruled. Hawaii Island Air Inc. v. Merlot Aero Ltd., No , 2015 WL (D. Haw. Jan. 30, 2015). U.S. Magistrate Judge Barry M. Kurren of the District of Hawaii denied Merlot Aero Ltd. s motion to dismiss Hawaii Island Air s breach-of-contract and misrepresentation claims, finding that the court has specific jurisdiction over the case based on Merlot s activities in the state. According to the complaint, Island Air reached out to Merlot s U.S.-based offices in 2013 seeking new software for crew scheduling, system operation and flight control. The companies corresponded mostly over and the phone, but Merlot representatives also flew to Hawaii twice for sales presentations, the magistrate s order said. In December 2013 the companies signed an agreement under which Merlot would provide Island Air with its merlot.aero software and on-site training, the order said. The agreement stated that New Zealand s laws apply and that the parties would submit to the non-exclusive jurisdiction of the New Zealand courts. Shortly after Merlot installed the software, Island Air began experiencing problems with payroll integration, compatibility issues with the system that communicates between aircraft and ground stations, and accessibility to crew data, the suit said. The airline asked Merlot for support, but said it found the software company s customer service inadequate and unable to fix the problems. Island Air terminated the contract and demanded a refund for the remaining contract term of 10 years. It is not unreasonable to expect the New Zealand-based software company to defend against the suit in Hawaii, the judge said. It sued Merlot in the District Court last October for breach of contract and deceptive trade practices under Hawaii s Uniform Deceptive Trade Practices Act, Haw. Rev. Stat. 481A. A few weeks later, Merlot sued Island Air in New Zealand for breach of contract and subsequently filed a motion to dismiss Island Air s complaint. The company said the District Court lacked personal jurisdiction over it and, alternatively, New Zealand was a more convenient forum. Although the District Court does not have general jurisdiction over the out-of-state company because its activities within Hawaii were not continuous or systematic, Magistrate Judge Kurren said, the court does have specific jurisdiction over Island Air s suit. The airline s claims arose from Merlot s contacts and activities in Hawaii, the magistrate said. Merlot purposefully availed itself of the privileges of doing business in the state and purposefully directed any alleged misrepresentations about its software there, the order said. Plus, it is not unreasonable to expect Merlot to defend against the suit in Hawaii, he said. Although the software company is based in New Zealand, it has U.S. offices and competent local counsel, the order said. The choice-of-law provision in the contract did not limit Hawaii s jurisdiction over the case, the magistrate said. While New Zealand may be an adequate alternative forum, many of the proposed witnesses are in the United States, he added. WJ Attorneys: Plaintiff: Kristin L. Holland and Paul Alston, Alston Hunt Floyd & Ing, Honolulu Defendant: Edmund K. Saffery, Regan M. Iwao and Scott K.D. Shishido, Goodsill Anderson Quinn & Stifel, Honolulu Related Court Document: Order: 2015 WL MARCH 11, 2015 n VOLUME 33 n ISSUE 1 7

8 EMPLOYMENT (DISCRIMINATION) Former NASA engineer says he was fired because he s from Iran A one-time NASA engineer has alleged in a Virginia federal court lawsuit that his Iranian heritage was the underlying reason his supervisor discriminated against him and ultimately fired him. Emami v. Bolden et al., No. 2:15-cv-00034, complaint filed (E.D. Va., Norfolk Div. Jan. 23, 2015). Plaintiff Saied Emami, a former aeronautical engineer, filed the suit in the U.S. District Court for the Eastern District of Virginia, saying former supervisor Kenneth Rock maliciously sought to terminate Emami because of his national origin and Muslim religion. Rock manifested an intense hostility toward Emami from the time he was appointed to be the branch head until he finally fabricated a performance-based pretext to terminate Emami s employment, the complaint says. NASA hired Emami, who was born in Iran and later became a U.S. citizen, in October 2002 for the Hypersonic Airbreathing Propulsion Branch at the Langley Research Center in Virginia, the suit says. Rock became the branch head in 2005 and subsequently began a pattern of discriminating behavior against Emami, including cutting funding for several of his projects while granting full funding to others, the complaint says. Emami says his repeated attempts to obtain promotions were denied and given to lessqualified employees who were not Iranian or Muslim. According to Emami, he received positive performance evaluations until Rock wrongfully accused Emami of unacceptable performance and put him on a performance improvement plan in 2013, the suit says. Both Rock and another supervisor refused to discuss the plan, and Rock repeatedly added requirements to the plan in violation of federal policy, according to the complaint. Emami says that although he complied with the plan s requirements, Rock fired him in April When Emami attempted to appeal his termination, Rock gave false information to the deputy director, who reviewed and ultimately upheld his termination, the suit says. The complaint says NASA violated Title VII of the Civil Rights Act of 1964 by allowing Rock s discriminating and retaliatory behavior. Although Emami lodged multiple complaints with various supervisors and NASA s equal employment office during his tenure, his claims were ignored, the suit says. Instead, Rock retaliated against Emami and NASA rubber-stamped the plaintiff s termination without conducting an independent investigation, the suit says. The plaintiff says his supervisor retaliated against him and that NASA rubber-stamped the plaintiff s termination without conducting an independent investigation. The complaint includes claims of tortious interference with contract and tortious interference with contract expectancy against Rock individually under Virginia law. Emami seeks front and back pay and compensatory damages, plus $350,000 in punitive damages from Rock. Co-defendant Charles F. Bolden Jr. is the head of NASA. WJ Attorneys: Plaintiff: Lisa K. Lawrence, Barbara A. Queen and Adam M. Harrison, Lawrence & Associates, Richmond, Va. Related Court Document: Complaint: 2015 WL See Document Section D (P. 32) for the complaint. 8 WESTLAW JOURNAL n AVIATION

9 EMPLOYMENT (DISCRIMINATION) Black pilots accuse United, Continental of promotion discrimination By Sydney Pendleton, Contributing Writer, Westlaw Journals Nearly two dozen black airline pilots have accused United Airlines and Continental Airlines of failing to promote them to management positions because of their race. Johnson et al. v. United Airlines Inc. et al., No. 4:12-cv MMC, fourth amended complaint filed (N.D. Cal. Feb. 2, 2015). The airlines, which merged in 2010, have a policy of filling management positions without first posting the vacancies, which results in black employees being precluded from participating in the promotion process and being underrepresented in management positions, the 23 plaintiffs fourth amended complaint says. According to the complaint, lead plaintiff Eldridge Johnson, a black pilot who currently holds the position of captain, began working for United in 1978 and has more than 20,000 total flight hours. Johnson says he has witnessed non-black pilots with less seniority and fewer total flight hours obtain promotions to management positions for which he interviewed and expressed interest. Closing and reopening job postings to ensure that blacks are not interviewed for the positions. Relying on arbitrary and subjective criteria in making promotional decisions. Relying on racial stereotypes in making promotion decisions. Another pilot, plaintiff Terry Haynie, alleges United subjected him to severe and pervasive harassment because he is black. He says he has been repeatedly subjected to racist and demeaning graffiti in various cockpits referring to him by name, with derogatory comments and racial slurs. The plaintiffs allege the airlines have demonstrated a pattern and practice of racial discrimination going back to the 1970s. According to the complaint, United agreed to guidelines outlining the hiring of more minority pilots to resolve a 1973 Former Continental Airlines CEO Jeff Smisek admitted at a public event in 2010 that the airline had a history of hiring discrimination against blacks, the suit says. Blacks can t get promoted, suit says United Airlines and Continental Airlines allegedly: Fail to consistently post job and promotion openings. Limit the selection of prospective managers to individuals with special assignment experience. Close and reopen job postings to ensure that blacks are not interviewed for the positions. Rely on arbitrary and subjective criteria in making promotion decisions. Rely on racial stereotypes in making promotion decisions. Pre-select and groom nonblacks for promotion, favorable assignments, higher pay and more desirable positions. Maintain largely racially segregated job categories and departments. The airlines exclude blacks from the promotional process by reserving promotions for those who have performed special assignments, informally called temporary management positions, which are given to non-black pilots without first posting the assignments, the complaint says. The defendants process of not posting vacant management positions has a discriminatory impact on black captains and other nonwhite employees, according to the suit. The complaint lists a number of ways the airlines shut blacks out of promotions, including: Failing to consistently post job and promotion openings. Limiting the selection of prospective managers to individuals with special assignment experience. discrimination suit filed by the U.S. attorney general. In 1988, the Equal Employment Opportunity Commission said the airline had failed to meet the agreed-upon ratio of minority hires to applicants. United CEO Jeff Smisek, the former CEO of Continental, admitted at a public event in 2010 that Continental had a history of hiring discrimination against blacks, the suit says. In addition to United and Continental, the suit names the airlines holding company United Continental Holdings Inc., as a defendant. All management decisions at United and Continental are made and/or approved by UCHI executives, the suit says. The complaint alleges race discrimination under Title VII of the Civil Rights Act of 1964 and other federal civil rights laws, and Deter and discourage black captains and operations supervisors from seeking advancement, training, favorable assignments and higherpaying positions. violation of the California Fair Employment and Housing Act. The suit seeks an injunction to stop the alleged hiring discrimination and impose procedures to monitor the airlines hiring and promotion practices. The plaintiffs seek unspecified damages, including back and front pay. WJ Attorneys: Plaintiff: Spencer Smith and Dow W. Patten, Smith Patten, San Francisco Related Court Document: Amended complaint: 2015 WL MARCH 11, 2015 n VOLUME 33 n ISSUE 1 9

10 EMPLOYMENT (ASBESTOS) Airline employee alleges workplace asbestos exposure A former airline mechanic and his wife have sued one-time employer US Airways and other companies, alleging he developed lung cancer from on-the-job exposure to asbestos. Abbott et al. v. Boeing Co. et al., No. GD , complaint filed (Pa. Ct. Com. Pl., Allegheny County Feb. 2, 2015). In a suit filed in Pennsylvania s Allegheny County Court of Common Pleas, Ronald and Mary Abbott allege Ronald worked for the airline at the Pittsburgh International Airport in the 1960s and from 1971 to 2000 in various capacities. From 1964 to the late 1970s, plaintiff was exposed to various asbestos products in the scope and course of his employment, the complaint says. Ronald was diagnosed with the asbestos-related lung cancer mesothelioma in November, according to the complaint. In addition to US Airways, the Abbotts are suing Boeing Co., Cessna Aircraft Co., Piper Aircraft Inc. and Textron Aviation Inc., among others. US Airways purchased and maintained asbestos-containing products at the work sites for use by its employees and had them install and remove the products, the complaint says. The plaintiffs say the airline failed to exercise reasonable care or properly warn Ronald Abbott about the risks of exposure to asbestos. The complaint also names Danieli Corp., alleging it was the premises owner of Abbott s father s workplace when Ronald lived at home in the 1940s to the 1960s. The plaintiffs say Ronald was exposed to asbestos fibers his father carried home on his work clothes. According to the complaint, the defendants have known for decades that asbestos-containing materials are hazardous to health, but [p]rompted by pecuniary motives willfully and wantonly ignored and/or failed to act upon said medical and scientific data. The plaintiffs are seeking punitive damages to punish the defendants for their actions, which were willful, wanton, gross, and in total disregard of the health and safety of the users and consumers of their products, the complaint says. The plaintiffs also accuse Metropolitan Life Insurance Co. of fraudulently altering medical studies on the dangers of asbestos exposure. In so doing, Metropolitan, and its aforesaid agents, provided a body of medical literature which, when relied upon by persons investigating such literature, would have lead to a false impression of the dangers of asbestos exposure, according to the complaint. WJ Attorney: Plaintiffs: Janice M. Savinis, Savinis, D Amico & Kane, Pittsburgh Related Court Document: Complaint: 2015 WL REUTERS/Mike Theiler The suit says the defendants, including US Airways and Boeing Co., failed to properly warn the plaintiff about the risks of asbestos exposure. REUTERS/Jim Young 10 WESTLAW JOURNAL n AVIATION

11 ASIANA FLIGHT 214 South Korea s Asiana settles U.S. court claims by 72 passengers in San Francisco jet crash (Reuters) South Korea s Asiana Airlines Inc. has settled compensation claims filed in U.S. courts by 72 people who were passengers on a flight that crashed at San Francisco s main airport in 2013, without disclosing financial terms. A spokesman for the carrier on March 4 confirmed the settlement, disclosed in a court document. The plane s manufacturer, Boeing Co., and Air Cruisers Co., which made the evacuation slides, also settled claims, according to the document, filed by attorneys in U.S. District Court for the Northern District of California. The settlement is the first instance in which the airline has settled in the U.S. after passengers went to U.S. courts, but Asiana had previously settled with passengers out of court or outside the United States, the spokesman said. He declined to say how many passengers it has now settled with in total. Boeing and Air Cruisers, now called Zodiac Aero Evacuation Systems according to its website but listed as Air Cruisers on the court document, could not be immediately reached for comment. The July 6, 2013, crash occurred when an Asiana Boeing 777 jet s tail struck a seawall The settlement is the first instance in which Asiana Airlines has settled in the U.S. after passengers went to U.S. courts, but the airline had previously settled with passengers out of court or outside the United States, a company spokesman said. short of the runway at San Francisco International Airport, sending the aircraft into a spin. Three teenage passengers from China died in the crash, and more than 180 passengers out of around 300 on board sustained injuries. The three passengers who died were not represented in the latest settlements, said Brian Alexander, an attorney with law firm Kreindler & Kreindler which represents their families. Alexander, who also represents REUTERS/Eugene Anthony Rah/Handout via Reuters Passengers evacuate the Asiana Airlines Boeing 777 aircraft after a crash landing at San Francisco International Airport on July 6, other passengers, said in most cases Asiana and Boeing are making payouts as part of the settlements, but declined to discuss any terms. Last year, the National Transportation Safety Board said Boeing should consider modifying flight controls on the 777 jetliner in response to the Asiana Airlines crash. The agency also said the pilots for the Seoulbased airline committed at least 20 errors in the final 14 miles of approach to the airport. It cited mismanagement by pilots as the probable cause of the crash. Asiana said it accepted NTSB s principal finding that the final responsibility for control of an abnormal situation lies with the pilots. At the time, Boeing said it disagreed with the agency s recommendations. The South Korean transport ministry decided to suspend flights on Asiana s Incheon-San Francisco route for 45 days after the crash as a penalty. The carrier has submitted a court claim in Seoul against the ministry s move, and a decision is still pending. WJ (Reporting by Joyce Lee and Alex Dobuzinskis; editing by Muralikumar Anantharaman and Kenneth Maxwell) MARCH 11, 2015 n VOLUME 33 n ISSUE 1 11

12 UNMANNED AIRCRAFT SYSTEMS FAA wants to speed approval process for commercial drones WESTLAW JOURNAL COMPUTER & INTERNET This publication, previously known as the Computer and Online Industry Litigation Reporter, follows the lawsuits arising from the use of the Internet for business and recreation, as well as cases involving computer hardware and software. This publication helps you stay abreast of the latest pretrial activities and winning case strategies in this quickly changing area of litigation. Each issue covers cases involving intellectual property, national and international jurisdictional issues, antitrust, Internet regulation, computer crime, and privacy issues, including issues arising from the increasing use of social networking sites like Facebook and MySpace. Call your West representative for more information about our print and online subscription packages, or call to subscribe. (Reuters) The Federal Aviation Administration is seeking ways to speed up the approval process for commercial drone operations, but its efforts have been hindered by its lack of authority to review multiple applications on a group basis, the FAA chief said March 3. FAA Administrator Michael Huerta told a U.S. House aviation subcommittee that the agency could better address a backlog of 450 requests from companies seeking exemptions to use commercial drones if it could approve a class of applications that have similar circumstances. The FAA recently proposed new regulations that would lift the current ban on most commercial drone flights, but the final rule-making could take anywhere from nine months to three years to finalize. During that period, companies can continue to apply for exemptions to use drones under strict rules. The estimate timeline of 2017 for finalization of the rule I think just seems too long, said U.S. Rep. Frank LoBiondo. The FAA has received about 450 exemption requests, Huerta said. But online government records show that only 28 companies have been granted exemptions so far. The agency has very limited ability to grant blanket exemptions to whole classes of users. So what that means is that we have to evaluate each application on its own individual merit, Huerta told the hearing. Anything that we can do that would enable us to look at classes of operators that have substantially identical facts or very similar characteristics could be quite helpful. The exemption process is currently the only avenue for the private sector to gain permission to use drones. Companies awaiting approval include Internet giant Amazon.com, which wants the FAA to allow it to conduct outdoor drone tests at a facility in Washington state. REUTERS/Gary Cameron The Federal Aviation Administration has received about 450 exemption requests for drones, according to FAA Administrator Michael Huerta, shown here. But online government records show that only 28 companies have been granted exemptions so far. The companies have been lobbying the FAA to streamline the exemption process by potentially establishing templates for different industries. Lawmakers also urged the FAA to move quickly to finalize the new rules so the United States does not fall behind other countries in an area that government and industry officials forecast will generate nearly $90 billion in new investment worldwide over the next 10 years. The estimate timeline of 2017 for finalization of the rule I think just seems too long, said U.S. Rep. Frank LoBiondo of New Jersey, the subcommittee s Republican chairman. WJ (Reporting by David Morgan in Washington; editing by Dan Grebler) 12 WESTLAW JOURNAL n AVIATION

13 NEWS IN BRIEF LACK OF OXYGEN LED TO PASSENGER S DEATH, SUIT SAYS A passenger died from oxygen deprivation after disembarking an American Airlines flight in Mexico, a Texas federal court complaint says. According to the U.S. District Court for the Northern District of Texas suit, Sharon Anne Tallieu and her husband, Joost, were flying from Dallas to Mexico in March 2013 when she suffered acute respiratory distress. The flight crew gave Tallieu oxygen, and her husband requested an ambulance be present when the plane landed, the suit says. Not only was there no ambulance waiting upon their arrival, but a flight crewmember demanded Tallieu return the oxygen tank, the complaint alleges. Tallieu was deprived of oxygen for 30 minutes and was not able to obtain oxygen in time to save her life, the suit says. The complaint was filed under the Montreal Convention, which governs liability for international airlines, and requests wrongful-death, survival and loss-of-consortium damages. Tallieu v. American Airlines Inc., No. 4:15-cv-00147, complaint filed (N.D. Tex., Fort Worth Div. Feb. 25, 2015). Related Court Document: Complaint: 2015 WL FAA GRANTS FILM COMPANY EXEMPTION TO DRONE RULE The Federal Aviation Administration has granted a two-year exemption allowing a Wisconsinbased production company to use unmanned aircraft systems, or drones, for aerial cinematography. According to the FAA s Feb. 18 grant of exemption, Picture Factory Inc. may use two UAS for aerial filming. The agency said the size of the proposed UAS, which weigh less than 20 pounds, will significantly reduce any potential harm to participants or bystanders in the event of an accident. Under the exemption, the UAS may not be flown faster than 50 knots or higher than 400 feet, and the operator must maintain a visual line of sight with the UAS at all times, the FAA said. SUIT OVER SHARP FOOTREST BELONGS IN FEDERAL COURT, AIRLINE SAYS A passenger s claims that he suffered permanent nerve damage due to a sharp footrest should be heard in California federal court, EVA Airways Corp. says. According to the airline s removal notice, filed Feb. 9 in the U.S. District Court for the Central District of California, diversity of citizenship exists between the Taiwan-based airline and passenger Hari Lal of California. The plaintiff seeks more than $350,000 in damages, which exceeds the $75,000 amount-incontroversy threshold for federal jurisdiction, the airline added. Lal said in a Los Angeles state court suit that he was traveling from Los Angeles to Taiwan and then Malaysia in October 2012 when he was forced to use a sharp stainless steel liver edge footrest attached to his business class seat, which permanently damaged the sural nerves in his legs. He filed multiple complaints with the airline, but EVA Airways refused to respond to his requests, he alleges. Lal v. EVA Airways Corp. et al., No. 8:15-cv-00217, removal notice filed (C.D. Cal. Feb. 9, 2015). Related Court Document: Removal notice: 2015 WL WESTLAW JOURNAL CLASS ACTION This reporter covers the proliferation of the class action lawsuit in numerous topic areas at the federal, state, and appeals court levels. Topics covered include consumer fraud, securities fraud, products liability, automotives, asbestos, pharmaceuticals, tobacco, toxic chemicals and hazardous waste, medical devices, aviation, and employment claims. Also covered is legislation, such as the 2005 Class Action Fairness Act and California s Proposition 64, and any new federal and state legislative developments and the effects these have on class action litigation. Call your West representative for more information about our print and online subscription packages, or call to subscribe. MARCH 11, 2015 n VOLUME 33 n ISSUE 1 13

14 Black Hawk CONTINUED FROM PAGE 1 Ternstrom, Witzler and Carpenter s mother, Collette, filed suit in the Los Angeles County Superior Court, alleging defects in the helicopter caused the crash. The complaint said an Army investigation revealed the accident was caused by the failure of the helicopter s tail rotor pitch change assembly due to Prototype s failure to install a cotter pin in a critical flight component (see Westlaw Journal Aviation, Vol. 32, Iss. 16, 32 No. 16 WJAVIA 2). Ternstrom and Witzler s injuries were exacerbated because the helicopter s seats, made by BAE Systems, did not properly absorb the force of impact, the suit said. The defendants removed the suit to the District Court last October, citing the federal officer removal statute, 28 U.S.C. 1442(a)(1). They said each company is considered a legal person under the statute and was acting under the U.S. Army s directions when it designed and manufactured the helicopter and its component parts (see Westlaw Journal Aviation, Vol. 32, Iss. 18, 32 No. 18 WJAVIA 8). ARGUMENTS FOR DISMISSAL The three defendants filed motions to dismiss Oct. 15, 2014, each arguing that the suit must be dismissed under the political question doctrine. The doctrine prohibits a court from interfering with a matter under another branch of government s authority. The companies said the doctrine applies to the suit because it involves military matters such as the government s procurement decisions regarding the helicopter and its parts. In their motions to dismiss, Sikorsky and BAE Systems also said the District Court lacks jurisdiction over them because the crash occurred in Georgia while the helicopter was built in Connecticut and the seats were constructed in Arizona. Neither company is incorporated in California or has its headquarters in the state, the motions said. The case presents a nonjusticiable political question, BAE Systems said. The plaintiffs, in opposition to dismissal, said the suit is a product defect case between private parties and does not invoke the political question doctrine. They alleged the defendants are seeking an improper expansion of the doctrine. They also said the court has personal jurisdiction over Sikorsky because the company advertises, sells and delivers Black Hawk helicopters and their parts in California. In addition, BAE has facilities in California and sells materials and equipment there, the plaintiffs said. Justice will not be served if BAE is allowed to enjoy the benefits of its California business but avoid the state s courts, the plaintiffs argued. THE DEFENDANTS RESPOND In their response briefs, the three defendants again argue that the political question doctrine applies, rendering the suit beyond the District Court s jurisdiction. The incident involved a U.S. Army helicopter that injured Army soldiers while they were operating under a military training mission, the companies say. The case therefore presents a nonjusticiable political question, BAE Systems said. With regard to jurisdiction, BAE says in its reply that it is incorporated outside California and has its corporate headquarters elsewhere. In addition none of the allegedly wrongful conduct occurred in the state, the company says. Sikorsky, in its recent filing, reiterates that the court has no jurisdiction over the company because the helicopter was made and sold in Connecticut and the crash occurred in Georgia. WJ Attorneys: Defendant (BAE Systems): Ronald A. McIntire, Perkins Coie LLP, Los Angeles Defendant (Prototype): Steven E. Young and Carol Chow, Freeman, Freeman & Smiley, Los Angeles Defendant (Sikorsky): James W. Hunt, Mark R. Irvine and Paul M. Tyson, Fitzpatrick & Hunt, Tucker, Pagano, Aubert, Los Angeles Related Court Documents: Defendant BAE Systems reply in support of motion to dismiss: 2015 WL Defendant Sikorsky s reply in support of motion to dismiss: 2015 WL Defendant Prototype s reply in support of motion to dismiss: 2015 WL See Document Section A (P. 17) for BAE Systems reply and Document Section B (P. 24) for Sikorsky s reply. 14 WESTLAW JOURNAL n AVIATION

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